Homebuilder stocks are hitting new highs as anticipation builds ahead of the Federal Reserve’s upcoming rate cut decision. Both Lennar Corp LEN and PulteGroup, Inc. PHM surged to 52-week highs on Sept. 18, with Lennar reaching $190.12 and PulteGroup hitting $141.43.

The rally comes as investors bet that the Fed’s expected rate cut could further boost the already resurgent housing market.

A note from Bank of America Securities highlights that the rally in homebuilder stocks has been underway since early July, coinciding with a drop in 30-year mortgage rates from 7% to 6.2%.

“Lower rates would benefit home demand,” the note added, suggesting that a Federal Reserve cut of 25 to 50 basis points would add fuel to the fire for the housing sector.

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Lennar, up 26.78% year to date and nearly 60% over the past year, has been a standout performer, benefiting from strong demand and improved earnings multiples. The company is expected to release its third-quarter earnings tomorrow (Thursday), which could provide further insights into its performance.

Bryn Talkington of Requisite Capital Management also pointed to Lennar’s impressive free cash flow yield of 11%, making it an attractive play for investors seeking value amid the rate cut frenzy.

PulteGroup, up a whopping 82.46% over the past year, followed a similar path. The company, which develops single-family homes under well-known brands such as Pulte Homes and Centex, continues to enjoy top-of-the-line margins despite industry headwinds like inflation and a soft labor market.

Analysts believe the Fed’s expected rate cut will temporarily relieve the housing affordability crisis, though long-term challenges remain.

Lennar and PulteGroup are positioned to keep riding the wave as the Fed’s decision looms. Investors eyeing exposure to the housing sector may want to watch closely.

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